Kazakhstan’s senate has approved the Asian Infrastructure Investment Bank agreement that defines the country’s $729.3 million share in the bank’s capital, as many anticipate the AIIB becoming a rival to the World Bank and Asian Development Bank within the region. In Uzbekistan, $843.8 million from its Fund for Reconstruction and Development is set to be allocated to the implementation of 27 projects included in the 2016 state investment programme, and the country is also set to use over $4 billion in foreign investments in 2016, with the lion’s share of these funds allocated to the fuel and energy sector. Meanwhile in Iran, electricity generation projects worth $30 billion are due to the opened up to foreign investors.

This year Kazakhstan became one of the three largest borrowers of the World Bank in the Emerging Europe and Central Asia (ECA) region, according to public relations department of the World Bank’s representation in Kazakhstan.

“The total volume of financial support to the ECA region reached USD 6.6 billion in this financial year; this amount includes USD 6.2 billion allocated by the International Bank for Reconstruction and Development (IBRD) and USD 362 million provided by the International Development Association (IDA). The largest borrowers were Romania (USD 1.9 billion), Turkey (USD 1.1 billion), Kazakhstan (USD 1.1 billion) and Poland (USD 1 billion),” the bank said.

As noted, the borrowed funds are used to support the three areas in the region: further deepening of reforms with the aim to enhance competitiveness, promoting social reform in the interest of economic growth that favors the interests of the broader population groups, and assisting countries to implement activities leading to “greening” of economic growth.

All in all, the World Bank Group provided to the ECA region more than USD 10.4 billion in 2012 fiscal year that ended June 30.

In pursuit of diversification, the country has instigated initiatives to encourage the growth of non-resource sectors. By Ben Aris Oil is essential to the Kazakh economy, but to ensure long-term prosperity, the country must diversify away from raw material extraction.

The Kazakh government is well aware of the problem and had already launched an extensive modernization program, even before the 2008 global economic crisis made diversification imperative.

President Nursultan Nazarbayev laid out the main goals of Kazakhstan’s modernization program in his 2010 State of the Nation speech. The president said that a large part of the $8-billion-a-year transfers from the National Fund – a reserve fund created from oil revenues to the state – would be directed to industrialization programs. Kazakhstan will invest up to $20 billion in the non-resource sectors of the country over the next five years, but the goal is to use this investment to prepare the ground for bringing in more foreign direct investment, which, it is hoped, will then take the lead in diversifying the republic’s economy.

Projects identified

A list of priority projects has been drawn up by the state agency Samruk-Kazyna, which holds much of the state’s assets and has been consulted for much of the industrial reform policy. All in all, the industrialization program will include 162 projects, with a total budget of KZT6.5 trillion ($43 billion), and the state expects that more than 200,000 jobs will be created.

Samruk-Kazyna has adopted a two-pronged approach. First, the state agency will help existing companies to increase the value-added component of their production, and so drive the processing and associated manufacturing industries. The second line of attack is to build the infrastructure to support the creation of new businesses and technologies. For example, among the larger investments are: upgrading all three petrochemical plants in Kazakhstan by 2014; building a new gas-processing plant; finishing the Balkhash, Mainak and Ekibastus GRES-2 power stations; and building a string of locomotive plants that can supply the republic and its neighbors with new trains.

To assist with the sector-specific reforms, the president called for the simplification of the bureaucracy that surrounds setting up a business. Among other measures, the president said the costs of starting businesses in Kazakhstan should be cut by 30 percent in 2010, and another 30 percent in 2011.

A large part of this goal has already been achieved, and the World Bank says in its Doing Business 2011 report that Kazakhstan has made more progress than any other country in the world.

Other initiatives to extend this progress include: accession to the World Trade Organization; ongoing integration with other Commonwealth of Independent States (CIS) countries, in particular via the new Customs Union with Belarus and Russia; developing a law for the country’s Special Economic Zones; and creating a roadmap for entrepreneurship development up to 2020.

Michael Weinstein, director of the European Bank for Reconstruction and Development (EBRD) in Kazakhstan, which has joined the diversification effort and committed $1 billion in capital to support the

drive, praises the government’s more pragmatic approach to carrying out reforms.

“In the past, there have been various diversification programs that for one reason or another did not succeed,” he says. “ The new program is more promising. Momentum is building. There is a window of opportunity to diversify – post-crisis, but before oil prices go through the roof again.”

This is not the state’s first attempt to remake the shape of the economy, but experts believe that the new program is a lot more likely to succeed. “The government has set its sights a bit lower this time – the priority sectors that President Nazarbayev has selected are the right ones,” says Weinstein. “Rather than looking at high-tech, the government is targeting sectors such as pharmaceuticals, chemicals, petrochemicals, metals, construction materials and fertilizers – the things that the country needs.”

Key sectors that the government hopes to develop:

Agriculture. The territory of Kazakhstan is the size of Western Europe and agriculture has huge potential. The basics are already there, but most of the supporting infrastructure is not. The state plans to increase productivity in agriculture and processing of agricultural products by a factor of two by 2014, through the application of new equipment and new technologies. At the same time, the state would like to increase exports of agricultural products to Russia, Belarus, Central Asia and Middle Eastern countries. “ Building the value chain in agriculture is important. The agriculture sector is difficult to invest in, but we hope [the EBRD’s participation with] investment will encourage other companies to become more transparent,” says Weinstein.

Infrastructure. Support for infrastructure of all types is crucial. In the energy sector, the EBRD and other international organizations helped to finance the construction of a new north-south power line to address the imbalance between the ends of the country, while the state is also investing in additional power-generating capacity.

Industry. The state will use various means to boost non-oil production and hopes to increase the share of non-oil exports to 45 percent from 27 percent in 2010. Three new locomotive plants are in operation, or close to it, and more engineering projects are in the pipeline. At the same time, the state will encourage investment to decrease energy consumption per GDP unit by 25 percent, while increasing productivity in processing industries by a factor of two. The main focus will be on boosting the share of processing industries in GDP to at least 13 percent – from 11 percent in 2009 – and increasing the share of innovation-driven enterprises to 20 percent from four percent.

Construction materials. Construction and real estate were major economic drivers before the crisis, but development still relies heavily on imports. Another plank of the diversification program is to develop the domestic construction materials sector. The president called for raising the share of domestically produced construction materials to 80 percent by 2014.

Pharmaceuticals. President Nazarbayev is keen to develop a domestic pharmaceutical industry and in early 2009, launched an ambitious program aimed at raising the volume of domestically produced medicines consumed to half of the total by 2014. This means building many new plants in a relatively short time, and the government is actively looking for foreign investment to facilitate the program. The furthest advanced project is that of Chimpharm – by far the biggest domestic player – to build a new tablet factory in Astana. This will be the first plant of any kind to be located in the new capital. The Kazakhstan Development Bank has already provided the funding and is also backing a second project to expand production facilities in Shymkent. Other players – including GlobalPharm, Nobel AFF and Romat – are reportedly planning new lines or new plants.

“Industrial development is our chance in the new decade for new opportunities for our country,” said President Nazarbayev, in his State of the Nation speech.

The government’s efforts to improve Kazakhstan’s rating in the World Bank’s ‘Doing Business’ survey started in 2008 with the establishment of a working group headed by deputy prime minister Erbol Orynbayev, and these were rewarded in the 2011 report.

Among the world’s economies, Kazakhstan improved its business conditions the most during the past year, moving up 15 places in the ‘ease of doing business’ rankings to 59th spot among 183 countries, according to Doing Business 2011.

The republic improved conditions for starting a business, obtaining construction permits, protecting investors and trading across borders. Reforms have been made easier to implement, thanks to the general rise in prosperity in Kazakhstan.

Overall, macroeconomic stability and high oil prices allowed Kazakhstan to achieve economic growth of around 10 percent annually over the past five years, according to the World Bank’s ‘Index of Economic Freedom’.

Kazakhstan’s ‘ease of doing business’ ranking also improved slightly in the 2010 report, reflecting improvements in three key indicators. The most notable improvement was in the ‘dealing with construction permits’ indicator, owing to a significant cut in the cost from $1,431 to $119.

Kazakhstan cut its corporate tax rate from 30 percent to 20 percent in 2009. The corporate tax rate will be further reduced to 17.5 percent in 2013 and 15 percent in 2014. The country also reduced the rates for labor taxes and mandatory contributions paid by employers, and introduced a new tax code.

Kazakhstan’s business climate has improved dramatically in 2011, climbing 11 places in the World Bank’s Doing Business rankings to enter the top 50 world economies for the first time.

The World Bank’s Doing Business Report 2012, released today, showed that Kazakhstan has moved up 11 places to 47, with strong progress in protecting investors and paying taxes.

The success continues a steady trend for Kazakhstan, the world’s fastest reformer in last year’s rankings, when it rose 15 places to 59.

Commenting on the report, Prime Minister Karim Massimov said: “The World Bank’s report shows our ongoing programme of business reform is working. We are more open to foreign investors than ever before. We are also building an environment in which small and medium enterprises will flourish – as they are at the heart of our drive to build a diverse, resilient and sustainable future economy. Kazakhstan has had twenty years of economic success, but in today’s tough financial times, it is the Government’s responsibility to continually improve the business environment and maintain the march up the rankings.”

The rise comes as the Kazakh economy prepares for the implementation of the Customs Union’s Common Economic Space on 1st January 2012, which will permit the free movement of capital, goods and labour between Kazakhstan, Russia and Belarus. The ranking makes Kazakhstan by far the easiest place to do business in a rapidly growing consumer market of 165 million people.

Key report data:

Kazakhstan moved up 34 places in the category on protecting investors, reaching 10th in the world, due to improvements in regulating the approval of transactions between interested parties and making it easier to sue directors in cases of prejudicial transactions between interested parties.

Kazakhstan rose from 26th to 13th in the world for paying taxes, with a simple payment system and low tax rates to encourage SME growth.

Kazakhstan maintained its position in the top 30 world economies for registering property (29) and enforcing contracts (27).

Notes to editors

1. World Bank Doing Business Report

The Doing Business Project provides objective measures of business regulations and their enforcement across 183 economies and selected cities at the subnational and regional level. The project, launched in 2002, looks at domestic small and medium-size companies and measures the regulations applying to them through their life cycle. Kazakhstan’s Country Report: http://www.doingbusiness.org/data/exploreeconomies/kazakhstan

The full World Bank Doing Business Report 2012: http://www.doingbusiness.org/~/media/FPDKM/Doing%20Business/Documents/Annual-Reports/English/DB12-FullReport.pdf

2. Kazakhstan’s Economic story

Sustained success:

In the past decade, Kazakhstan’s economic growth has more than doubled. Growing at an average annual rate of 8-9%, it is one of the ten highest performing economies in the world.

The monthly wage of a Kazakh worker has increased an incredible 45 times since 1994, now standing at an average of $600 per month. Poverty rates have reduced fourfold in 10 years.

The economy is on track to grow by up to 7% this year, with an average of 7% growth forecast for the years 2011 – 2015.

Kazakhstan’s foreign trade surplus grew by more than one third in the past year, to $11.6 billion in the first quarter of 2011, from $8.1 billion in the same period in 2010.

Exports rose 36% year-on-year to $18.3 billion in January-March 2011. Imports also rose, by 26%, to $6.8 billion during the same period.

Encouraging diversification and investment:

As a result of the Government’s diversification strategy, Kazakhstan’s manufacturing industry grew by almost one fifth in 2010, with overall industrial growth standing at 10%.

Almost 700,000 small and medium-sized businesses now employ more than 2.5m Kazakh workers and represent more than 30% of GDP.

By 2014, the Government plans to implement 294 investment projects worth $55.5 billion.

11 investment projects totalling $5 billion will be implemented in Astana in the next five years in different sectors such as infrastructure and high-tech space projects. Two economic zones have already been established in the city.

Kazakhstan is investing heavily in infrastructure; the New Silk Road will cut the time it takes to travel from Europe to China by 45 days. Investors will benefit not only from Kazakhstan’s rich potential but from easy access to a region of huge geostrategic importance.

On the Kazakh side of the Aral Sea, water levels are rising, and fishing communities are being rebuilt. The future of the South Aral Sea, bordering on Uzbekistan, is still in doubt. Matilda Lee reports from Aral City

Aral City’s vice-mayor Kolbai Danabaev can’t wait to have a beer by the sea shore. He is optimistic: he thinks he’ll be able to do so in two years time.

Aral City, in western Kazakhstan, on the northern tip of the Aral Sea, has the trappings of a beach spot: sun, sand, and locally-brewed Aral Beer. But, while Kolbai Danabaev and other city officials are happy to pose for PR photos with the local brew in hand, in the background, something crucial is missing.

There is no sea.

The port today is a fisherman’s paradise lost. The shoreline is nowhere in sight. The dry and dusty sea bed stretches into the horizon, the sea having receded 20 kilometres away.

Some 24 native freshwater species could be caught in the Aral Sea. Fish was such a central part of the cuisine of this town that the pike-perch, with its delicate flavor and small bones, was used instead of boiled meat in the local version of the Kazakh national dish, beshbarmak. This is quite something in a meat obsessed country.

Now, the restaurants here don’t serve fish, as it is too costly for most locals to eat. Indeed, the only fish on view are in the city’s museum, sealed up in display jars.

Aral Sea catastrophe

Aral was once the world’s fourth largest lake, but Soviet-era irrigation projects, beginning in the 1960s began to divert the water from the two rivers that flow into it, the Syr Darya, and the Amu Darya. By 1980, the sea had shrunk to 17 per cent of its original land area, and 9 per cent of its water volume. The images pictured here show the extent to which the sea shrunk between 2000 and 2009.

The water became so salinated that native freshwater fish species were unable to survive, and the communities around the sea had to make do with the flatfish flounder, a saltwater species introduced in the 1970s. Salt and ‘toxic dust’ from pesticide and fertiliser residues left on the bottom of the sea was carried by the wind, causing human health and environmental damage.

And so, with the water and the fish gone went the jobs, and much more. Fish processing and ship building in Aral City, supporting some 6,000 people, ground to a halt. Many families in the surrounding 24 villages in the region, facing unemployment, packed up and left for the city of Kyzylorda, 450 kilometres away.

Local teacher and translator, Akmaral Utemisova, says, ‘During school lessons, we ask the children to imagine what the sea would be like,’ she says. ‘None of the children under 15 have ever seen it.’

Back from the brink?

For years, the Aral Sea catastrophe was not addressed. By 1990, the damage was so severe it had split into two parts – the Northern Sea bordering on Kazakhstan and the larger South Sea in Uzbekistan.

Despite regional efforts to restore sea levels by the five Central Asian countries through the International Fund for Saving the Aral Sea (IFAS) created by Kazakh president Nursultan Nazerbayev in 1993, there were only temporary results.

Then in 2003, the Kazakh government, along with the World Bank, began work on the joint $64 million Northern Aral Sea restoration project, including the eight mile Kok-Aral dam, completed in 2005. The dam will allow water to accumulate in the Northern Sea and help restore delta and riverine wetland ecosystems as well as sustaining and increasing agriculture and fish production in the region.

The second phase of the project begins this year, although, according to Kazakh vice minster for Environmental Protection, Mazhit Turmagambetov, there is an issue with finding funding to match the amount proposed by the World Bank.

(SRI) – The World Bank said last Tuesday it had approved a $1-billion loan to Kazakhstan to provide budget support for the government’s economic program.

The loan will help support the government’s economic program by focusing on fiscal policy, management of the budget and banking regulation, the World Bank said in a statement.

“Kazakhstan is borrowing $1 billion from the World Bank to finance the 2010 republican budget deficit, support growth, and maintain higher social commitments stipulated in the budget,” Bolat Zhamishev, Kazakhstan’s Minister of Finance, was quoted in the statement.

According to Motoo Konishi, World Bank regional director for Central Asia, the approval of the loan reflects confidence by the bank in the “direction of economic policies and reforms of the [Kazakh] government.”

The loan has an interest rate equal to 6-month LIBOR plus variable spread, and a maturity of 25 years, including a three year-grace period.

About

Kazakhstan Chamber of Commerce in USA is located in New York. KazCham is an independent chamber associated with state agencies and businesses in Kazakhstan with the aim to provide members with current information on the political and investment climate, assist them in establishing government and business contacts, conduct searches of buyers and partners, organize forums and seminars, PR campaigns. Contact us at info@kazcham.com or follow on twitter.com @kazcham.